The Blog

The Dollar Dance

It rises, it falls, it's bought, it's sold. On how much of our fate does the dollar's height have hold?

11:00 PM, Nov 15, 2004 • By IRWIN M. STELZER
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The "less" that there is to this story also includes the possibility that the large trade deficit will in the end prove more sustainable, and for longer, than economists steeped in academic theory may think. The Chinese are riding a tiger, and can't easily get off. If they stop supporting the dollar, the value of all those bonds, notes and other dollar-denominated assets they hold will fall, with some experts guessing that a further 20 percent decline in the dollar will wipe as much as 3 percent off China's GDP. The Japanese authorities, too, are worried. Their economy's renewed growth is heavily dependent on exports, and they are not likely to sit idly by if the yen continues to rise relative to a falling dollar. So the Ministry of Finance is poised to resume intervention to shore up the dollar.

In short, the good news is that supporters of the dollar can't easily beak their habit, and that even if the dollar does continue to dance to the Arlen-Mercer tune, the enormously resilient American economy will adapt without a major hiccup, as it has in the past.

Irwin M. Stelzer is director of economic policy studies at the Hudson Institute, a columnist for the Sunday Times (London), a contributing editor to The Weekly Standard, and a contributing writer to The Daily Standard.